The route business continues to evolve and adapt to changing business conditions. Changing the way leases are processed is one of the most impactful shifts. It is an important way to improve profits and retain clients.
The problem is that these contracts are often static or fixed price. Route operator leases are usually in the 7-to-10-year range but some can be as long as 20 years. Some have automatic, or first right of refusal clauses that can extend the length even more.
That was the business model and contracts/leases were often called rental payments because it was a fixed amount paid to the property manager per month for use of the laundry space. Most deals were basic lease payments with machine charges, collection expenses, refunds etc “baked in”. A win-win attitude was prevalent and deals targeted a 50:50 split on collections. The idea was that you’ll win in some areas and lose in others but it’ll work out with experience and good estimates.
As time goes by, the operator’s portion of the deal is eroded because some of the expenses “baked in” were not in line with actual expenses and some expenses were unaccounted. Any changes or variations would require a renegotiation which would inevitably sour the relationship with the property manager since they’d have to give up revenue. Covering the unforeseen without transparency to the client would be fatal. The higher the margin to ensure profit over the period makes the route operator less competitive. The more accounts, the worse the problem.
The solution is to improve transparency with your clients. Improved communication leads to client retention and ultimately improved profits. Renegotiation becomes simpler. To manage these kinds of contracts your software must process all allowable adjustments before each payment.
Technology is driving much of the change. If we take a maturing 10-year contract as an example, the collection process was sending an employee to get the coins or card values from the location. The lease accounted for the hardware, employee and some other expenses but vend price increases require approval. There were very few significant variable expenses. The payment taking technology was largely coin slides and value-add cards.
Since then, there has been a major shift to mobile payment taking devices that are often rented with transaction-based costs. Payment taking has shifted from a fixed cost to a variable expense.
The operator has no control over the external conditions of the property, any budget or estimate for an expense for a period of 10 years is bound to be inaccurate. A laundromat could open next door, the occupancy rate could drop, vandalism could become rampant.
Using software that can support and manage these kinds of contracts is essential. Route operators that can respond to the variable adjustments in a timely manner will improve their profits and client retention.
"Artificial Intelligence (AI) for Commercial Laundry Route Operators - 4-Part Series"